To salvage value for victims of massive frauds like the Bernard Madoff and Scott Rothstein debacles, bankruptcy trustees routinely bring actions not only against former management of debtors as active wrongdoers but also against financial professionals who failed to detect the fraud or were instrumental in its facilitation.
In such actions, management, auditors and fiduciaries commonly assert “in pari delicto” as a defense. This defense is based on the seemingly counter-intuitive use of an equitable doctrine, combined with the legal construct that the trustee steps into the shoes of the debtor, including the defenses with which the debtor is chargeable.
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